In addition to the quality of a product, the sustainability of its production is becoming increasingly important these days. Whether in terms of environmental protection or compliance with social standards, consumers want to know what they are buying and under what conditions a product has been produced – and this applies just as much to cars and smartphones as it does to meat and coffee. For companies that sell products to consumers under their own name, having a sustainability strategy is indispensable. Regulation, like the Modern Slavery Act in the UK or the Lieferkettengesetz in Germany require companies to invest in the transparency of their supply chains. Consequently, research shows that this may not be enough: companies are not only held responsible for their own failings, but also for those of their suppliers. From a customer’s perspective, the supplier and sub-supplier form a kind of jointly liable entity. For example, a study by Kim, Wagner, and Colicchia (“The impact of supplier sustainability risk on shareholder value”), published in the Journal of Supply Chain Management in 2019, shows that ecological or social failings on the part of suppliers have a direct impact on the share prices of the group by which they are contracted.
Sustainable Supply Chain Management – a double-edged sword
Companies are therefore well advised to ensure that their supply chains are also sustainable and to work with their contractors to develop a strategy (Sustainable Supply Chain Management or SSCM). In general, measures that are less harmful to the environment or create better working conditions should be favored, and they are also perceived this way by the public. However, given the complexity and extent of SSCM measures, it is impossible to fully anticipate unintended consequences. Thus, even if companies increasingly invest in sustainable supply chains, these, too, always harbor the risk of side effects.
However, this poses a dilemma for companies: on the one hand, they have to publicly communicate their sustainable supply chain management strategy in order to meet their customers’ expectations. On the other hand, by doing so they expose themselves to even greater scrutiny for parts of their supply chain over which they do not have total control. From a research perspective, Professor Dr. Lutz Kaufmann from WHU – Otto Beisheim School of Management has investigated the topic together with his colleagues Professor Dr. Craig Carter from Arizona State University and Professor Dr. David Ketchen Jr. from Auburn University in Alabama. Additionally, Charlotte Both has written her bachelor thesis on the subject under the supervision of Lutz Kaufmann, for which she received the In Praxi Outstanding Thesis Award. In their analyses, the researchers consistently come to the conclusion that managers should go public with any unintended consequences of their sustainable supply chain management. Only then will their SSCM strategy be credible.
Creating a balance is important
When companies and their suppliers are scrutinized in terms of sustainability, there is always a tension between economy, ecology, and social issues – the “triple bottom line”. A balance has to be struck between economic profitability, environmental protection, and social standards. Focusing exclusively on maximizing profits will do more harm than good to the company in the medium and long term. Despite all good intentions, management must always bear in mind the profitability of the company as a whole and the job security of its employees.
Unintended consequences need not always be bad
Even if an SSCM strategy has unintended consequences, these do not necessarily have to be negative. A company in Paraguay that wanted to improve conditions for its tea plantation workers through SSCM provides a positive example of unintended consequences. Because the plants only grow seasonally, there were large fluctuations in income throughout the year, resulting in poor healthcare for the people. Once the problem was recognized, the management sought solutions: in a pilot sustainability project, more than one hundred families among the workers were given beehives. That way they were able to cushion severe income fluctuations thanks to the year-round honey production. The project turned out to be a great success: not only was it possible to stop the rural exodus and create better living conditions for the people in the region, the workers were also available to the supply chain for a longer period of time, and 30 percent of the people that took part in the project were able to leave extreme poverty behind.
When it comes to adverse unintended consequences, companies are often quick to fall silent. As a reflex, they try to hide the consequences so as not to expose themselves to the risk of bad press. One producer of animal and plant proteins, for example, committed itself to reducing its ecological footprint and thus also its water consumption by a whopping 50 percent by 2025. Water was stored, recycled, and rainwater was increasingly used in order to operate more sustainably. While the savings were considerable, it soon became clear that the initiative had its limitations – and the savings were well below the planned 50 percent. If the company had wanted to stick to its original plans, this would have had an impact on the water-intensive cleaning measures and hygiene standards at the production facilities in the countries of origin. The consistent implementation of sustainable supply chain management would thus have jeopardized product safety – a consequence that would have been as unintentional as it was unacceptable.
More openness is called for
A measure that does not exclusively have the intended consequences for sustainable supply chain management need not be a disaster. Other positive effects can be publicized and the company may inspire imitators. The fact that a company has developed a sustainability strategy at all is always to its credit.
In this context, the researchers argue for significantly more openness in corporate communications. Among other things, they propose that managers report unintended and often unavoidable consequences of their sustainable supply chain management. The various stakeholders of companies should also be encouraged to openly address any side effects they observe. A culture of debate about negative consequences rather than cover-ups would lead to a more constructive approach to the issues and would enable others to learn lessons as a result.
The SSCM initiative review – a marathon, not a sprint
A more open approach to unintended consequences would ultimately also lead to greater credibility for companies. Until now, companies have been happy to emphasize the sustainability of their supply chain management while keeping quiet about its unwanted side effects. This quickly leads to the suspicion of greenwashing, which dilutes the positive results of their sustainable supply chain management.
According to the supply chain management experts, managers should even actively seek out unintended consequences after implementing their measures and evaluate them – a process that takes time, however. This also requires a rethink because to date there has been a tendency to focus on short-term success in decision-making processes. The long-term combination of sustainability and supply chain management can also be economically worthwhile for companies. At the same time, this requires constructive support for the process and continuous reassessment.
What the supply chain experts advise:
- Remember that the negative image of a supplier also reflects on the company that placed the order. Therefore, encourage your suppliers to take environmental protection and social standards seriously.
- No one can anticipate all the unintended consequences of sustainable supply chain management. Deal with this fact openly, publicize the side effects, and encourage your stakeholders to do the same. Both positive and negative lessons learned from the initiatives will benefit you and others.
- Do not present your sustainable supply chain management as perfect. This puts your company at risk of greenwashing and makes you less credible.
- Do not just evaluate the positive effects of your sustainable supply chain management in the long term, but also its negative ones. This will provide important insights which will help your company in the long run.